AI Winners vs. AI Victims – Get on the Right Side of This Trade

According to the article, AI is creating a divide between "AI Appliers" and "AI Victims," with companies like Toast, an AI-enabled restaurant solutions provider whose stock has soared 80% since August, thriving due to its integration of AI, while others, such as Shutterstock, are struggling; Shutterstock's stock is down over 40% since August due to AI competition. The author emphasizes the importance of identifying AI winners and losers for investment purposes, highlighting the need to adapt to AI to avoid becoming an "AI victim."

Analysis

Artificial intelligence is creating a significant bifurcation in the market, separating companies into 'AI Appliers' and 'AI Victims,' a trend with disruptive parallels to historical technological shifts like the tractor's impact on farming. Toast, Inc. (TOST) exemplifies an 'AI Applier'; the Boston-based firm, providing AI-enabled solutions for the restaurant industry, has seen its stock soar 80% since August. This performance is underpinned by strong fundamentals, including a 119% net revenue retention rate since 2015, a pivotal shift from negative to positive operating margins nine months ago, and a recent Q1 report featuring record revenue and EBITDA that significantly surpassed analyst estimates, leading to a 10% stock increase post-earnings. Toast's success is attributed to its comprehensive platform integrating diverse restaurant operations and leveraging a vast dataset to refine its AI tools, enhancing client efficiency. Conversely, Shutterstock Inc. (SSTK) illustrates an 'AI Victim,' with its stock declining over 40% since a skeptical analysis in August. The company's financial performance has deteriorated, posting EPS of $1.01 last year against an expected $1.90, and the consensus earnings estimate for the current year has been revised downwards from $3.00 to $2.10, reflecting the AI-driven obsolescence of its traditional image library business model. This divergence underscores the imperative for companies to rapidly integrate AI, especially as the development of artificial general intelligence (AGI) accelerates, or face existential threats.

Key Decisions for Investors

• Investors should critically evaluate companies based on their strategy and capability to integrate AI, recognizing the widening performance gap between effective 'AI Appliers' and vulnerable 'AI Victims'.
• Consider further investigation into companies like Toast (TOST) that demonstrate strong AI adoption, robust financial growth, positive margin inflection, and market outperformance as potential investment opportunities.
• Exercise caution with or avoid companies like Shutterstock (SSTK) whose business models are fundamentally challenged by AI, as evidenced by deteriorating financials and significant stock underperformance.
• Monitor the pace of AI development, including progress towards Artificial General Intelligence (AGI), as it may shorten the timeframe for companies to adapt and intensify the market's differentiation between AI winners and losers.